The Free Lunch Crowd

If there is reincarnation, I want to come back as a mega-bank, or better yet as the Fed. Monetary Czar Bernanke is embarking on a buying spree euphemistically called QE 3. The gnomes of Fed-land are really smart. They know how much the economy will grow for four years . They know that inflation will be 1.8% in 2012, 2013, and 2014, and (I'm not kidding!) 1.9% in 2015.
Of course, they have to be that smart. They have been granted the privilege of creating money whenever the fancy strikes them. Usually, they use that money to buy U.S. Treasury instruments of various maturities. This time, they will concentrate on long-term (how long?) securities, and maybe some mortgage-backed securities, just for variety.
In principle, this strategy should increase the value of long-term debt instruments. That is the same as lowering long-term interest rates. One might wonder why they don't buy other things, too. If they bought land or homes or cars...(Read Full Article)